Paragon Commentary

Futures File: Hogs & Bonds

Mar 22, 2019

Hog Market Sizzling

Hog futures contracts continued exploding higher this week, setting new price records across all contracts. Markets rose the exchange maximum price for two days straight, locked “limit up,” as traders scrambled to buy bacon.

Prices have risen by over 50% during the last month as the effects of African swine fever in China worsen, likely killing millions of animals in the world’s largest pork-producing country. The deadly disease has no known cure or vaccine and has been spreading rapidly, threating pork supplies.

China has been preventatively culling hog herds to control the spread of the disease but with little success so far. In the coming months, China is expected to significantly increase its pork imports, much of which would likely come from the United States.

Looking ahead, the biggest concern is that the disease continues to spread within China and to new countries, although most experts believe the disease poses little threat to the U.S. due to better biosecurity and safety measures here.

As of midday Friday, April hog futures were worth 78.4 cents per pound.

Fed Hawks Turn Dovish

The Federal Reserve confirmed this week that it has largely given up plans to raise interest rates again this year. Over the past few months, the Fed has turned from a “hawkish” stance (expecting to raise rates aggressively) to a more “dovish” posture to keep rates steady.

This change signals that the Fed is more concerned about economic growth and less worried about inflation, as the move to keep rates low should help boost spending and borrowing by individuals and businesses.

As a result, interest rate futures contracts made sharp moves this week, with 10-year Treasury notes signaling the lowest interest rates since late 2017. Treasury values are incredibly important to investors, but even the average citizen should care about them, as they are the foundation behind the interest rates on mortgages, auto loans, and credit cards as well.

Meanwhile, U.S. stock markets had mixed reactions. Stock buyers generally want lower interest rates, but the Fed’s concerns also served as a warning sign for the market as well.